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Tax Implications of Surrogacy

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Navigating the Tax Implications of Surrogacy

A child of yours is always precious whether directly or through surrogacy and the joy of receiving your child through surrogacy is equally the same. But surrogacy has some legal and financial aspects whose understanding is crucial for both intended parents and gestational carriers (surrogates).

Therefore, the guide elicits all the necessary explanation on tax implications of surrogacy to avoid any unforeseen circumstances by the US legalities: 

Tax Implications for Intended Parents

Let us have a look at the tax implications of surrogacy for intended parents: 

  • Medical Expenses: Usually, you can claim a portion of surrogacy costs as deductible medical expenses on your overall federal income tax return liabilities. But there are certain limitations that you must be potentially aware of and seeking expert guidance by is direly essential. 
  • Payments to Surrogate: The payment that you (as intended parents) owe to your surrogates (such as pregnancy, and other reasonable expenses) that is listed in your surrogacy contract do not fall under the bracket of taxable income.

These payments, however, are considered as adoption related expenses and you might be eligible to claim some of the tax credit on this type of expenses. 

  • Adoption Tax Credit: The US taxation department has given parents a lenient adoption policy that allows the intended parents to offset the adoption costs to a certain level and you can claim this opportunity even for surrogacy expenses incurred to you. As per the updated US tax laws and policy, the maximum Adoption Tax Credit, per child, is actually $16,810.
  • Dependent Care Expenses: Gladly for workers like you, the US tax code offers assistance through programs such as Dependent Care Assistance Program (DCAP) that are specially designed for working parents. DCAP allows you to utilize childcare for your newborn by enabling you to allocate pre-tax funds specifically for covering dependent care expenses.

Tax Implications for Gestational Carriers (Surrogates)

Let us have a look at the tax implications of surrogacy for gestational carriers or surrogates: 

  • Payments Received: The compensation that the gestational carrier receives for her services is considered as taxable incomes. Therefore, the surrogate is required to enlist this income on her tax return and accordingly pay income tax to the US government. 
  • Medical Expenses: As a surrogate, you can claim out-of-pocket medical expenses that you have incurred and these expenses are not reimbursed by the intended parents, provided that you are still under the claimable threshold percentages according to your AGI. 
  • Self-Employment Taxes: It is basically a business for the surrogate to provide surrogacy services to people like intended parents, she may or may not be entitled to pay self-employment taxes such as social security and medicare taxes depending upon the amount of compensation she has received. 

Whether as a surrogate you qualify for paying such taxes or not can only be determined through assistance by qualified tax experts like 

Essential Documents:

Below is a list of essential documents that you must keep handy: 

  1. Surrogacy contract outlining the financial arrangements between the surrogate and the intended parents. 
  2. Detailed record of all surrogacy-related expenses such as medical bills, receipts, etc. 

Bottom Line: 

Surrogacy and its tax implications are quite crucial for both the surrogates and for intended parents. If they fail to understand these legal obligations they might not be able to properly file their income tax return accurately and may lose on potential tax credits. 

To better understand these tax implications of surrogacy it is essential to seek expert guidance from qualified tax experts such as to in order file your federal income tax return accurately.

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